It may come as a surprise, but seniors are more afraid of running out of money in retirement than they are of death. The traditional ways of planning for retirement no longer guarantee a comfortable income to cover expenses, leaving many retirees struggling to make ends meet.
The tried-and-true retirement investing approach of yesterday is no longer effective in today’s market. For example, the yield on 10-year Treasury bonds has significantly decreased over the years, making it a less viable option to fund retirements. This decline in bond yields has had a substantial impact, with the difference in yield for a $1 million investment in 10-year Treasuries over 20 years amounting to more than $1 million.
In addition to reduced bond yields, the future of Social Security benefits is uncertain. While benefits are still being paid now, it is estimated that the Social Security funds could be depleted by 2035. Retirees are faced with the dilemma of cutting expenses to the bare minimum or finding alternative investments that offer a steady, higher-rate income stream.
One such alternative is investing in dividend-paying stocks. These stocks, especially those from reputable, low-risk companies, can provide a smart option to replace low-yielding Treasury bonds. Look for stocks with a history of steady, increasing dividends and positive annual dividend growth to combat the effects of inflation.
Three dividend-paying stocks retirees may consider for their portfolio include ADT, Principal Financial, and Shutterstock. These companies offer dividend yields ranging from 3.05% to 3.35% and have shown annualized dividend growth in the past year.
While stocks generally carry more risk than bonds, investing in high-quality dividend stocks can help decrease overall portfolio volatility and combat inflation. It is important to conduct thorough research before investing in dividend-focused mutual funds or ETFs, as high fees can diminish dividend gains and defeat the purpose of this investment strategy.
In conclusion, seeking a steady stream of income from dividend-paying equities can lead retirees to a more secure and peaceful retirement. By choosing the right stocks or funds with low fees, retirees can potentially enjoy a comfortable income in their golden years.